LONDON, Sept 24 (Reuters) – Bank of England Deputy Governor Sarah Breeden said on Thursday that it would be “increasingly appropriate” to respond to growing inflation risks by raising interest rates.
Breeden, deputy governor in charge of financial stability, said policymakers should not wait too long for signs of second-round effects feeding through from high energy prices, otherwise they might regret it.
Her remarks chimed with a recent shift in tone on the Monetary Policy Committee that could open the door to a November rate hike, following moves already made by the European Central Bank and U.S. Federal Reserve.
“The larger and longer the shock, the more likely it is that we’ll see the material second-round effects that policy needs to respond (to),” Breeden told the UK Macro Policy Forum organised by the National Institute of Economic and Social Research.
“I wasn’t there in September (in terms of being ready to vote for a rate hike), but I was mindful that the balance of risks had shifted, and as risks crystallise it’s increasingly appropriate for Bank Rate to respond,” she added.
Asked on financial markets pricing in around 100 basis points of interest rate hikes over the next year, Breeden said she was focused on the next decision, due in November.
“For me now, the question is: ‘Do we need to do the first move?’ Whether or not we need to do many more I think depends on how the economy, the shock in the economy, evolves from here,” Breeden said, adding that the BoE could not ignore the moves in the market’s pricing of rate hikes.
Clare Lombardelli, deputy governor for monetary policy, said on Thursday interest rates will likely have to rise if energy prices stay elevated, unless there is clear evidence of a weaker economy.
BoE Governor Andrew Bailey and Deputy Governor Dave Ramsden also raised the prospect of raising interest rates at last week’s meeting. Bailey said there was no “firm judgement” on what will happen to rates.
(Reporting by David Milliken, Writing by Andy Bruce)
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